AT&T Entrance Pushed Price Drops in Mexico Telecom Market

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May 12 — Less than two years after Mexico passed new laws to encourage competition in its telecom sector, AT&T Inc. has established enough of a toehold to drive a reduction in prices and improved services, according to a recent Moody's report on the sector.

A 2014 overhaul of Mexican telecom laws had been designed to attract new entrants by limiting the market share permitted the market dominator, America Movil. But it was the subsequent entrance of AT&T, rather than specific law changes, which sparked competition and brought down prices, according to the report.

“AT&T said they were interested in consolidating the market – this alone has put big pressure on the other operators, especially Telcel,” said Nymia Almeida, a senior credit officer of Moody's in Mexico and author of the report, in an interview with Bloomberg BNA. “These things would have happened with or without the reform.”

AT&T entered Mexico through its acquisition of Iusacell in 2014 and Nextel in 2015, providing it with an initial 11 percent share of the market. It was a move likely inspired by the legislation, even though previous laws had already allowed 100 percent foreign ownership of mobile phone companies. The new laws eased rules on fixed telephony, where there has been little subsequent investment interest.

AT&T has since focused on attracting new postpaid mobile market customers, with plans to invest more than $3 billion in its 4G wireless lines and its high-speed mobile network. It is rapidly expanding its coverage to 75 million customers by the end of 2016 (up from 40 million) and expects to be able to provide coverage for 100 million by the end of 2018.

The strategy appears to be working. AT&T has expanded the customer base it had purchased from roughly 24 percent market share in the third quarter of 2014 to 33 percent by the third quarter of 2015.

The new laws have also provided additional price benefits to customers, creating a single rate nationally rather than tiered rates for long distance calls within Mexico. The laws also prohibited long-distance cell phone charges from landlines.

The overhaul has put pressure on America Movil, owner of Telcel, to relinquish some of the stronghold it had over the market, with requirements that it fall below the required 50 percent market share to avoid monopoly designation. To do so, the company spun off its mobile towers into a separate business, Telesites, which then leases out access to its towers.

Yet despite the increased access to the towers, Almeida said that the sluggish Mexican economy will likely prevent the entrance of additional competitors to the telecom market.

“The access to the towers is a good thing that came from the reform,” Almeida said. “Others don't have to invest in putting towers up just to hang one antenna. But the price wars are so intensive and the margins are so slim that I still don't see people starting a mobile company in Mexico.”

To contact the reporter on this story: Emily Pickrell in Mexico City at correspondents@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com